Goldman, Citigroup Planning First 2012 Commercial Mortgage Deal

A Goldman Sachs Group Inc. logo hangs on the floor of the New York Stock Exchange in New York. Photographer: Daniel Acker/Bloomberg

Jan. 10 (Bloomberg) -- Goldman Sachs Group Inc. and
Citigroup Inc. are planning to market about $1 billion of bonds
backed by commercial property loans as soon as next week as
demand for the debt recovers amid optimism the U.S. economy can
withstand Europe’s fiscal crisis.

The deal will probably be the first of its kind for 2012,
according to people familiar with the offering, who declined to
be identified because the transaction hasn’t been announced. The
New York-based banks last sold similar debt in September, when
they issued $1.7 billion in securities tied to shopping malls,
hotel and office mortgages, according to data compiled by
Bloomberg.

Banks pulled back from making new loans to package into
bonds in July as Europe’s debt crisis roiled credit markets and
sent relative yields soaring. Originations have since picked up,
according to a Standard & Poor’s report last month. The ratings
company is forecasting $35 billion in 2012 sales.

Michael DuVally, a spokesman for Goldman Sachs in New York,
declined to comment. Scott Helfman of Citigroup, also in New
York, declined to comment.

The extra yield investors demand to own top-ranked
commercial-mortgage bonds rather than Treasuries has declined 85
basis points to 238 basis points since Oct. 4, when it rose to a
20-month high, according to Barclays Capital CMBS AAA Super
Duper Index. The spread expanded from the 2011 low of 178 basis
points, or 1.78 percentage points, in April.

“Despite global concerns, people are ready” for a new
deal, said Ed Shugrue, CEO of New York-based commercial mortgage
bond investor and special servicer Talmage LLC. “The market
wants to transact.”

Attracting New Buyers

Bankers have retooled offerings sold since August by
boosting investor protection on the safest classes and
registering the debt with the Securities and Exchange Commission
to attract new buyers after demand shriveled amid the spreading
European debt turmoil. The AAA portion of the Goldman/Citigroup
deal should move “briskly,” Shugrue said, speaking in an
interview at the Commercial Real Estate Finance Council’s annual
convention in Miami.

The slowdown in lending was visible in the third quarter
last year as fewer loans paid off than in the first two
quarters, Standard & Poor’s said in a Dec. 19 report. About 56
percent of loans paid off at maturity in the third quarter, down
from more than 67 percent in the prior three-month period,
according to the New York-based rating company. A lack of new
sales chokes off funding to borrowers with debt coming due.